image source, Getty Images
- Author, Michael Race
- Role, Business reporter, BBC News
-
Online used car retailer Cazoo has gone bankrupt after hundreds of jobs were cut as part of a major restructuring.
Cazoo became popular during the Covid pandemic when restrictions forced car buyers to browse and make their purchases online.
But the loss-making company has struggled to raise money from investors, and in March it changed its model from a dealership where it bought and sold cars itself to a marketplace where consumers can buy and sell cars.
This move resulted in 728 redundancies, Teneo’s insolvency administrators said after being tasked with finding a buyer for the company.
Teneo said the company’s 208 remaining employees would be retained for the time being during the administration process.
It’s a dramatic fall for the company, which grew in popularity during the pandemic and subsequent lockdowns.
If you hadn’t used Cazoo in 2021, you probably would have seen or heard about it. Its brand presence was felt everywhere, with the company sponsoring Premier League football teams Aston Villa and Everton, as well as numerous other major sporting events such as darts and snooker.
Cazoo was different from other more traditional car dealers – it was a technology company trying to shake up an established order.
The platform allowed buyers to purchase, partially trade in and finance vehicles entirely online. Customers could order from their sofa and have the vehicle delivered to their home in just 72 hours, with a seven-day return policy.
The pandemic that began at the end of 2019 massively increased the company’s assets. In addition to Covid restrictions that meant people could only buy used cars online, a global microchip shortage that disrupted the production of new vehicles also played into Cazoo’s hands as used car prices skyrocketed.
The environment led to an astonishing increase in the value of the company. When it listed on the New York Stock Exchange in September 2021, it was valued at a whopping $7 billion (£5 billion). Its value has now fallen to just $30 million.
In November 2021, Cazoo’s founder Alex Chesterman – who also launched property website Zoopla and LoveFilm, a predecessor to Netflix – told the BBC that capturing just a small market share would create a “huge business”, arguing that Cazoo offering customers a simpler experience, greater choice and price transparency.
The platform was subsequently launched in France, Germany, Spain and Portugal. At its peak, Cazoo employed 4,500 people in 2021.
But despite its mission to transform the auto retail industry, the feel-good factor surrounding Cazoo began to wane.
image source, Getty Images
One of the key people behind Cazoo’s strong marketing campaign was Andrew Francos, who joined the company shortly before its founding.
He says the early days were “really exciting times” but believes the company expanded too quickly.
“Looking back, I think Europe was a distraction,” he says. “I remember saying to someone, ‘Are we leaving too early?’ I was probably naive to just buy into the vision because I believed in it.”
Mr Francos left Cazoo in October 2022 and admits he felt like he was leaving a sinking ship, but adds: “I also thought they would turn things around.”
“Cars are fundamentally different”
The company has never made a profit. While this is not unusual for a start-up – in fact, Mr. Chesterman said he expects this to be the case for two or three years after the IPO – its losses mounted.
In 2022, the company reported a loss of £704 million, up from £544 million the previous year, and in December last year it restructured $630 million in debt.
According to Catherine Faiers, chief operating officer of car marketplace giant Auto Trader, “cars are just fundamentally different to other things you buy,” while Covid made a shift to buying online the norm for many goods.
They believe most UK consumers prefer a combined approach, doing research online first, but then viewing the car and speaking to a dealer in person before spending their money.
“Buying a car is a bit like buying a house. It is the second most valuable thing that most people buy. “A car because it gives me freedom, it gives me independence, it gives me strength,” says Ms. Faiers.
Kevin Gaskell, a former CEO of Porsche, Lamborghini and BMW, says Cazoo’s problems stemmed from “simply the fact that he was trying to break into a very demanding, very established market.”
“They believed they could become an online retailer and offer a full service, but car dealers already do that. The model they have developed is nothing new,” he told the BBC’s Today programme.
“They put a lot of money into developing the brand. In terms of their sales, they’re nowhere near where they expected.”
Changes at the top
Mr. Chesterman stepped down as chief executive in January 2023 and perhaps all was clear for Cazoo when he left the company entirely in December.
His successor, Paul Whitehead, stepped down in March this year – at the same time as Cazoo announced it had sold its remaining stock and moved to an online marketplace model that allowed car dealers to list their own stock on its platform, and the company conducted European business.
The company said it was exploring “strategic alternatives” to bankruptcy, including selling parts of its business, as it struggled to raise money from investors, but no buyer came forward.
When contacted by the BBC for comment on Cazoo’s demise, Mr Chesterman said he had not been associated with the company for more than 18 months and declined to comment further.
Philip Nothard, insight and strategy director at Cox Automotive, says Cazoo forced many of the incumbent players to adapt, but as supply issues and microchip shortages eased, it allowed others to catch up.
“They came quickly, they came with great effort, they came with a concept that at first glance worked in many ways,” he adds
“[But] Over time, established retailers were able to offer what Cazoo was offering. They could provide this omnichannel digital eCommerce experience. And essentially they already had physical infrastructure in place.”